Taxability of IPR under indirect tax laws has always been surrounded by ambiguous interpretation in relation to its transfer from its owner. Prior to GST regime, there was a persistent struggle regarding the treatment of transfer of IPR for the purpose of tax liability, whether to treat it as 'goods' or 'services'. The union government had right to levy service tax on transactions relating to IPR if the same were classified as services, while the state governments had the right to sales tax/ value added tax if the transaction involving IPR was treated as sale or deemed sale of goods. This in many cases led to double taxation when the industry being wary of probability of imposition of penalty for evading tax went ahead and chose to pay both sales tax and service tax.
However, with introduction of GST, the prerequisite of classification of IPR related transaction as relating to provision of service or sale or deemed sale of goods was absolved.
TEMPORARY AND PERMANENT TRANSFER
Under GST, temporary transfer or permitting the use or enjoyment of any IPR has been treated as 'supply of services' in terms of entry 5(c) to Schedule II of Section 7 of the CGST Act and is leviable to GST@ 12% (6% CGST + 6% SGST) provided such IPR is not in respect of Information Technology (IT) Software. Further temporary or permitting the use or enjoyment of IPR in respect of IT software is taxable @18% (9% CGST+9% SGST) as 'Licensing services for the right to use intellectual property and similar products'.
Permanent transfer of IPR is treated as supply of goods. Permanent transfer of an IPR is considered as supply of goods and is leviable to GST @12% provided such IPR is not in relation to IT software in terms of Notification No. 41/2017-CT (Rate), dated 14.11.2017. However, there is paradoxical situation for transfer of IPR in respect of IT software, wherein it is treated as goods and services both. It is important to note that while GST rate of permanent transfer of IPR has been inserted under goods notification cited above, corresponding deletion has not been done to the service notification. This dual classification of GST rates would create unnecessary procedural complications, relating to time of supply, place of supply, invoicing, and accounting of ITC credit and proper availment thereof.
It is important to note that earlier, permanent transfer was not considered as a service. The Hon'ble Supreme court in BSNL Vs. UOI had laid down an exclusivity test (whether transfer/assignment/license is exclusive to the transferee) for determining if the transfer tantamount to sale or not. However, it is important to note that under GST laws it is irrelevant since the transaction in any which way will be subjected to the same concurrent tax.
Since permanent transfer of IPR has been treated as goods and services under GST laws, the point of contention is whether permanent transfer of IPR is covered under heading 99733 to scheme of classification of services or Serial No. 243 / Serial No. 452P to scheme of classification of goods. Heading 99733 to scheme of classification of services provides for permitting, granting, or authorizing the use of intellectual property products wherein license is granted by the supplier to the recipient to use IPR.
License is a permission given to a person to do or enjoy something that otherwise he does not have the legal right to do or enjoy. Therefore, a licensor does not transfer any proprietary interest to the licensee but the recipient is only allowed to use IPR, thus, there is no transfer of title/ownership. Once title/ownership is transferred, it is considered as 'assignment' resulting into permanent transfer of IPR wherein assignee becomes the owner of the right assigned and can exercise its rights suo moto. Therefore, an assignment is a transfer of the IPR and treated as supply of goods under GST whereas a license, whatever the terms of it may be, is only permission given for consideration, and not a transfer. Hence, assignment of goods under GST would be considered as goods while granting licence of IPR under GST is treated as services.
SALE OF 'BRANDED' AND 'UNBRANDED' GOODS
Various products like raw grains, pulses, natural honey, paneer, cereals etc. sold loosely without any brand name are exempt from GST. However, the same commodities sold in a packaged form under a registered brand name attract GST.
In the press release issued by the Ministry of Finance, the phrase "registered brand name" in terms of the GST Notification means brand name or trade name registered under the Trade Marks Act, 1999. Hence, there may arise a situation wherein supply from a particular company selling for example pulses under a brand name which is not registered would be exempted from GST. This can become a loophole under GST regime and will definitely affect the Intellectual Property industry, where small businesses may be encouraged not to get their brand name registered.
Under GST laws, applicable tax is required to be deposited by the person supplying the goods and/or services on a forward charge. However, there are certain categories of supply of goods or services or both on which tax is required to be deposited under reverse charge mechanism. In this context, in case of supply of services by an author, music composer, photographer, artists or like persons, by way of transferring or permitting the use or enjoyment of a copyright covered under the Copyright Act, 1957, then such recipient of services will be liable to discharge applicable tax.
In view of the above and considering how the GST law stands as of now, there are certainly some areas where further clarity is required on the taxability of IPRs and there is a need to bridge the loopholes in the tax provisions. Thus, the government is required to provide clear instructions so as to avoid disagreements, tax avoidance and consequent litigation in future and proper compliance to bring about ease of doing business.
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